Key Business Court Decisions

A Non-Signatory To A Contract Cannot Force Arbitration Of Its Claims

Where a party asserts claims against a business arising from a contract containing an arbitration clause, the party cannot compel the business to arbitrate the claims if the party was never a signatory to the contract.  Charlotte Student Housing DST, et al. v. Choate Construction Co., et al, 2019 NCBC 20 (J. Conrad).  As a result,  the party’s sole remedy is to pursue its claims in court.

In 2015 Plaintiffs purchased a student housing complex known as Acadia from Defendant The Sanctuary at Charlotte, LLC (“Sanctuary”).  Sanctuary had entered into a number of separate contracts with the other defendants to build Acadia, including one contract with Defendant Miller Architecture (‘Miller”) to coordinate and oversee the design of the HVAC system.  After Plaintiffs purchased Acadia, it discovered extensive problems at the complex, including mold issue that Plaintiffs alleged were related to the HVAC system.  Plaintiffs sued Sanctuary, Miller and five other defendants for problems related to Acadia.

Plaintiffs sought to compel arbitration of their claims against Miller.  Miller opposed the request.  Although Plaintiffs had no contract with Miller, the contract between Sanctuary and Miller required arbitration for “any claim, dispute or other matter in question arising out of or related to the Agreement.” Based upon this language, Plaintiffs contended they were entitled to force Miller to arbitrate their claims even though Plaintiffs themselves were never signatories to the contract.

The Business Court disagreed.  While recognizing that a non-signatory who asserts a claim based upon a contract containing an arbitration clause can be forced to arbitrate its claim if so requested by a party to the contract, the Court found that the opposite is not true.   The Court reasoned a non-signatory can be forced to arbitrate contract-related claims it asserts under the theory of equitable estoppel.  However, the Court held that in order for equitable estoppel to apply, it requires “an assertion of claims related to a contract.” (Opinion, ¶37).  Even though Miller might nonetheless rely on the terms of its contract with Sanctuary to defend against Plaintiffs’ claims, the Court found that because Miller had not asserted any claims against Plaintiffs (but had only been sued),  equitable estoppel did not apply and Miller would not be forced to arbitrate.  Based upon this decision, if a business is sued by a non-signatory for claims related to a contract containing an arbitration provision, the business should determine whether it wants to force the non-signatory to arbitrate (which it should be able to) or allow the matter to remain in court.  The choice belongs entirely to the business.

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